The Real Price of Food

Looking back on grocery budgets for a few years , you might notice that almost all the items cost more today. Sure, prices rise with time and the weird weather impacting harvests everywhere also has a role to play, but there is another underlying factor which is at work here. While commodities like corn or soy have historically been traded on exchanges, today the market is being changed by the entry of financial institutions and people that have no connection with the actual growing or selling of food. This type of trader deals in derivatives which are not positions on actual crops grown but some financial version of them. This means that the price of wheat, for example will not be influenced by the actual yield but speculation based on artificially created numbers. This creates much more volatility in the price of food grains than would normally be the case. The food system is already going to face the pressure of climate change, now we need to add to that an artificial and unnecessary pressure created by trading in commodity derivatives. It is precisely this type of speculation that fueled the disastrous housing bubble. That it should be permitted to function in the domain of food when nations and people are all struggling with food security is troubling. The chances of such speculation being stopped entirely are slim but some effort for regulation and oversight is crucial. For more reading:

And just as I was getting ready to post , news on futures trading in turmeric! It seems that in a time of continuing global economic crisis, speculators have decided to put their bets on food and that is an ominous development.